Use of personal credit cards may explain drop in small business loans

In his latest commentary for Businessweek.com, Scott Shane, the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University, explores the law of unintended consequences and its relationship to a drop in small business lending.

In 2011, he notes, the number of small loans ($1 million or less) to businesses dropped 4.7% from the year before. The number of loans “is now down to about three-quarters of its 2008 peak,” he writes.

There are many reasons for this: Demand remains weak, the real estate market has been slow to recover, and banks have tightened lending standards.

But another factor behind the decline, Prof. Shane writes, “may be the CARD Act, which went into effect in February 2010 and has led small business owners to shift from business to consumer credit cards.”

The new law “protects consumers from some of the banks' less-desirable credit card practices,” he writes. “In response to the new law, banks have reduced some fees, are much less likely to raise interest rates on accounts already in place, and have made credit card costs more understandable.”

There's not yet good data on how much the CARD Act has affected small business borrowing, he writes, but its effect “could be substantive.”

For instance, the Federal Reserve reported to Congress that credit cards are an important source of credit: In 2009, the latest year it tracked, 83% of small business owners used credit cards for their businesses, and 18% borrowed on them.

Moreover, Prof. Shane adds, a National Federation of Independent Business report “shows that the fraction of small business owners who use personal credit cards for business increased from 42 percent in 2009 to 49 percent in 2011, while the fraction who use business credit cards declined from 64 percent to 59 percent.”

Policymakers, he writes, “need to figure out how much of the decline in small loans to businesses comes from the shift from business to personal credit cards. Small business lending has declined to levels not seen since 1999, erasing the runup in credit during the loose financing of the early 2000s and suggesting that the small business credit pendulum has overshot its correction.”

This and that

Come together: The latest Forbes.com column by Rebecca O. Bagley, president and CEO of NorTech, looks at how universities and private enterprise can work together more efficiently to develop industries and create jobs.

Ms. Bagley co-chairs the Industry subcommittee of the Ohio Board of Regents Commercialization Task Force. She writes that the committee “developed a series of recommendations to increase and improve technology transfer among Ohio's universities and industry” but adds, “I believe these recommendations have relevance” beyond Ohio.

“While universities and industry have different missions and cultures, there are mutual benefits to these collaborations,” Ms. Bagley writes. “Therefore, if both universities and industry are more creative and flexible when approaching collaborations it will lead to stronger results.”

She quotes task force member Philip Brennan, CEO of Echogen Power Systems Inc. of Akron, a startup that's developing a system to transform waste heat into electricity, as saying, “It's important for universities to nurture an entrepreneurial culture by offering tangible incentives to researchers and increasing opportunities for students to be engaged with developing and commercializing new technologies.”

Mr. Brennan added, “Universities can also support early stage entrepreneurs to help ﬁll some of the funding gaps for prototypes and proof of concept testing.”

What's to eat?: Hooked on the food truck dining experience but have a hard time finding them? This website can help.

A company called FoodTrucksNearMe.com has launched a page that tracks the tweets and locations of Cleveland's food trucks.

The Cleveland page joined previous pages tracking the movements of food trucks in Chicago and St. Louis.

Face time: The U.S. Small Business Administration next Tuesday, Aug. 7, will host a free Mentor-Protégé Matchmaking Conference in Cleveland.

The event runs from 8 a.m. to 5 p.m. and “gives small disadvantaged businesses access to guidance on federal contracting, face-to-face meetings and opportunities to team with larger businesses and graduates of the SBA's 8(a) Business Development program,” according to the SBA.

It takes place at the Intercontinental Hotel, 9801 Carnegie Ave. Go here for information.